Visa and Mastercard settlement aims to cut swipe fees and reshape checkout rules across the U.S., marking a potential turning point in a two-decade fight with retailers.
Key Points
The card networks agreed to lower certain fees and relax long-criticized rules to help close a 20-year legal battle with merchants. If approved by the court, the pact would trim fees, give stores new choices about which cards to accept, and open the door for surcharges on card usage—changes that could ripple through checkout lanes nationwide.
What are the Visa and Mastercard settlement changes
Regulatory filings show that the Visa and Mastercard settlement would reduce the average effective interchange rate for U.S. credit card purchases by 10 basis points over five years. Standard U.S. consumer credit rates would be capped at 125 basis points—about 1.25%—over the same period.
The plan also eases some of the networks’ most controversial policies. Merchants could choose to accept only certain card types and add surcharges to cover card processing costs, changes that would give stores more control over payment acceptance.
Fee reductions and caps
- Interchange cut: The average effective interchange fee falls by 10 basis points for five years.
- Cap on standard cards: Standard consumer credit interchange is capped at 1.25%.
- Who receives interchange: While Visa and Mastercard set interchange, most of that revenue goes to issuing banks, including large players such as JPMorgan Chase, Capital One, and Citigroup.
In plain terms, interchange is the fee paid by a merchant’s bank to the cardholder’s bank to process a transaction. Merchants see it as a “swipe fee” baked into their cost of accepting cards. U.S. credit and debit swipe fees reached a record $187.2 billion last year, according to the Merchant Payments Coalition (MPC).
Card acceptance flexibility
Under the Visa and Mastercard settlement, merchants can choose whether to accept U.S. credit cards in three separate categories: commercial, premium consumer, and standard consumer.
That change strikes at the heart of the longstanding “honor all cards” rule, which required stores to accept all Visa or Mastercard credit cards if they took any cards from those networks. Merchants have argued that the rule forced them to accept higher-cost premium cards, even when rewards and perks drove up interchange rates.
In practice, a merchant could accept standard consumer cards while declining premium cards that carry higher fees. For example, a premium card in a top-tier rewards program might be turned away, while a standard no-fee card from the same issuer would be accepted.
Surcharging options
The agreement also permits merchants to add a surcharge when customers choose Visa or Mastercard credit cards, subject to applicable laws and clear disclosure. Surcharges have been allowed in many jurisdictions, but rules and enforcement vary. The settlement would formalize that flexibility within the networks’ own rulebooks.
Why this deal matters for merchants and consumers
For merchants—especially smaller businesses with thin margins—interchange reductions and acceptance flexibility can translate into lower payment costs and more negotiating power. Mastercard said the resolution provides clarity and flexibility, emphasizing that smaller merchants stand to benefit from simpler rules and more acceptance choices.
For consumers, the impact could be mixed. Some stores may steer customers to lower-cost payment options or add surcharges on premium cards. Others could continue accepting all cards to preserve convenience. Either way, the economics of card acceptance may become more transparent at the point of sale.
Background: Two decades of swipe-fee fights
The legal battle over swipe fees has stretched more than 20 years, as merchants challenged network rules and sought relief from rising costs tied to rewards-rich cards. An earlier agreement announced last year aimed to save merchants at least $30 billion over five years—one of the largest antitrust settlements on record.
That deal unraveled when U.S. District Judge Margo Brodie rejected it in June 2024. She raised concerns around the “honor all cards” rule and the costs tied to premium cards. The rebuff pushed both sides back to the negotiating table and laid the groundwork for the current Visa and Mastercard settlement.
Visa said the companies have reached a proposed settlement spanning merchants of all sizes, designed to deliver “meaningful relief” and greater control over payment acceptance. The Wall Street Journal first reported the latest deal over the weekend.
Reactions and debate around the proposal
The Merchant Payments Coalition criticized the pact as too modest. An MPC executive committee member, Jennifer Hatcher, argued that the networks limited only the portion of fees that go to banks, not the fees the networks retain for themselves, leaving room for increases elsewhere that could dilute any savings.
Retail groups have long contended that swipe fees rise in tandem with premium rewards, squeezing margins and leaving them little choice but to accept higher-cost cards to avoid turning away customers. By chipping away at “honor all cards” and allowing category-based acceptance, the Visa and Mastercard settlement attempts to address one of the merchants’ biggest pain points.
The card networks, for their part, maintain that the agreement balances merchant flexibility with consumer protections. They say the five-year fee relief and clearer rule set will stabilize the market and reduce friction at checkout, even as the payments landscape continues to evolve.
What to watch next for the Visa and Mastercard settlement
- Court approval: The proposal is subject to judicial review. If the court approves the Visa and Mastercard settlement, implementation would follow on a prescribed timeline.
- Merchant adoption: Stores will decide whether to accept all cards or set different policies for commercial, premium, and standard consumer credit. Expect pilots and phased rollouts, especially among large retailers with complex payment setups.
- Checkout experience: Consumers could see new signage, prompts, or surcharges that make card-cost differences more visible. For frequent users of premium rewards cards, acceptance may vary by merchant.
- Competitive dynamics: Banks and issuers that rely heavily on premium rewards may face merchant pushback at checkout. Networks may respond with new incentives or adjusted fee structures to retain broad acceptance.
- Policy backdrop: With swipe fees drawing congressional and regulatory attention over the years, any settlement may influence future policy debates and industry standards.
The broader economic context
Swipe fees touch almost every consumer-facing industry—from grocery and fuel to restaurants and e-commerce. When those costs rise, merchants argue they have few options but to raise prices, reduce service, or narrow acceptance. Conversely, lowering fees can support smaller merchants and spur competition on price and service, though the benefits can be uneven.
The cap on standard consumer interchange rates at 1.25% aims to anchor costs for everyday cards, while category-based acceptance lets merchants set policies that reflect their cost structures. Whether those changes lead to visible price relief is harder to predict and will depend on how widely the new options are adopted.
The networks’ business model and banks’ role
Visa and Mastercard set interchange schedules, but most interchange revenue flows to issuing banks. That structure funds fraud protection, credit risk, and cardholder rewards—especially on premium cards rich with travel points and cashback. The tension between funding rewards and controlling merchant costs has been at the core of the swipe-fee debate for years.
By trimming average interchange and capping standard card rates, the Visa and Mastercard settlement nudges the balance in merchants’ favor—at least temporarily—while preserving the overall framework that underpins credit-card rewards and acceptance.
Outlook
The real test lies ahead: how merchants implement their new options, how issuers adapt their rewards economics, and how consumers respond at checkout. Some merchants may embrace category-based acceptance to rein in costs, while others stick with universal acceptance to keep lines moving and customers happy.
If adopted at scale, the changes could prompt more transparent pricing for payments—where the costs of premium perks are clearer to merchants and consumers alike. If not, the market may look much the same, with incremental relief from the five-year fee cuts and caps.
Conclusion
The Visa and Mastercard settlement proposes targeted fee cuts and rule changes that could reset the balance between merchants, banks, and payment networks—without upending the entire system. Whether it delivers durable savings for retailers will depend on court approval, the pace of merchant adoption, and how networks and issuers recalibrate in response.
After two decades of litigation, this agreement is a step toward closure. The next phase will determine how much actually changes at the checkout counter—and how quickly.
FAQ’s
What is the Visa and Mastercard settlement and how does it affect fees?
It’s a proposed deal to cut the average effective interchange rate by 10 basis points for five years and cap standard consumer credit interchange at 1.25%. It also loosens rules on which cards merchants must accept.
When will the Visa and Mastercard settlement take effect?
It still needs court approval. If approved, changes will roll out on a set timeline, likely in phases, and adoption may vary by merchant.
Can merchants reject premium cards or add surcharges under the settlement?
Yes. Merchants could accept only certain categories (standard, premium, commercial) and may add surcharges where allowed by law, with clear disclosure.
Will consumers see lower prices because of the settlement?
Savings depend on merchant adoption and network/issuer responses. Some costs may drop, but visible price changes for shoppers aren’t guaranteed.
Article Source: Bloomberg
